Self-employed individuals face a number of challenges independent of “running their business”. One of the greatest challenges is selecting a retirement plan that meets the unique needs of their company. Until recently, self-employed workers were limited in the ways they could shelter their income and save for future goals. Most would choose to use a Simplified Employee Pension (SEP) as it was easy to establish and the most popular amongst their peers. In recent years, however, a compelling alternative to the SEP has emerged, the Individual 401(k).
The fact is, neither is necessarily best but the good news is that both are good; the type you select should be determined by individual circumstances and retirement objectives.
For example, most people are aware that contributions made to a Traditional IRA are Federal Income Tax deductible, subject to specific limits. Most people, however, fall within the limitations and can contribute tax free dollars to a Traditional IRA. The money must remain in the IRA until the investor reaches age 59 ½.
In recent years Equity-Indexed annuity sales have hit record levels. That’s a result of investors pur-chasing these annuities without fully understanding the complexities of their contract. Given the scars of past market volatility, the promise of principal protection with potential for growth is appealing to many people. Insurance companies which issue these Equity-Index annuities spend millions of dollars on high end marketing materials in an effort to promote the upside potential with little to no explana-tion of risks and complexities of the contract. Nor do they mention the high level of compensation paid to the insurance agents who sell these products.
Stocks were hit hard last week in a selloff that marked their worst performance since June of 2012. Weakening growth momentum in China put significant pressure on global stocks and exacerbated the negative sentiment around emerging markets. As you might expect, investors have been on “easy street” with little concern about market corrections. This implied detachment from reality however, can lead to a random fight to safety. In other words, everyone started hitting the “sell” button. As a result, the S&P 500 has moved down some 3% in the last week while the Russell 2000 is closer to a loss of 5%.
Click here to view Full Article
Watching the Griswold’s in “Christmas Vacation” last week reminded me it’s that time of year again to take a closer look at some often overlooked year-end planning strategies for families and businesses. There were a number of tax law changes in 2013 that have added increased complexity to an already challenging tax system. Reviewing a few steps should simplify matters and help alleviate your tax bite.
November is here again. My six year old son has now started asking the same recurring question: “Mom, when am I getting my ‘Benjamin’?” His birthday is in November, and the ‘Benjamin’ is you guessed it, a $100 bill. Yes, my son is looking for his cold hard cash. He also knows that a Benjamin is equal to five Jacksons, and that a Jackson is two Hamiltons, one of which is two Lincolns, and that a Lincoln is five Washingtons. He’s also learned that two fairly decent Hot Wheel track sets will cost about two Jacksons, and that a BIG track will set him back the entire Benjamin. I am usually the anointed keeper of good ole’ Ben, while my son scours the isles, checking prices underneath each brightly colored, power boosted, track set he can find.
According to Webster’s dictionary, Insurance is defined as coverage by a contract, whereby one party under-takes to indemnify or guarantee another against loss by a specified contingency or peril. To me, it is important that Americans understand the outright definition of what it is that they are dealing with now that the gov-ernment has shifted responsibility onto its people, forcing them to buy and retain coverage or face a penalty.
The understanding of how insurance works may be foreign to many Americans, but what people need to un-derstand is that “insurance” is a business. There are businesses that sell commodities, businesses that sell ser-vices and then there are businesses that sell protection both tangible and not. Insurance is a business that sells intangible protection for you, your family, and your property or in some cases even other people.
The government has decided that mandating health coverage for all Americans is the right thing to do; provid-ing benefits for all, therefore eliminating our right to choose to be covered. Today, if you drive a car in the state of North Carolina, you are required to buy and retain coverage on your vehicle for your own protection and for the protection of others. However, it is your “choice” to drive a car. The “choice” of carrying health in-surance on you and your family has now been removed, and to an economy looking to recover, businesses struggling to make ends meet and the costs of health care skyrocketing, mixes a concoction that will be hard for anyone to swallow.
While the U.S. GDP recovery is well into its 5th year now, labor market recovery has remained painfully slow. Most economists blame the lack of investment by small businesses, the primary engine of job growth. Two surveys that we follow provide some reason for optimism on this front. First, the Federal Reserve’s quarterly survey of banks’ senior loan officers provides various insights on the supply of, and demand for, credit in the U.S. economy. Second, the National Federation of Independent Businesses (NFIB), a national trade association for small businesses, conducts a monthly survey of its members. The NFIB’s Plans to Hire Index has been rising sharply this year and the August data point for this series was the highest since before the crisis. In its most-recent survey released in July, the Federal Reserve noted that a net 20% of banks reported an increase in loan demand from small businesses, again the highest percentage since before the crisis. Finally, our analysis also suggests that an increase in small-business loan demand is a solid leading indicator of increased hiring plans.
Courtesy of Argus Research
The Case-Schiller 20-City Home Price index rose year-on-year at plus 12.3 percent to reach a new recovery high. Looking at individual cities, strong gains in the west are leading the recovery. As home values increase, so to does the equity in everyone’s home. This appears to be encouraging some formerly “underwater” buyers to put their homes on the market. The resultant rise in homes-for-sale inventory threatens to slow the double digit gains in home prices; but rising inventories are also pulling more potential home-buyers into the mix.
Digging into the data for July, released on September 24, the housing sector has enjoyed 13 consecutive months of acceleration in the year-over-year growth rate since growth returned in June 2012. However, the growth rate may have peaked. Growth was either 12.2% or 12.1% in each of the previous three months as compared to the current 12.3% recovery high. Plus, year-over-year comps will get tougher as the year progresses.
Keeping this recovery theme alive, low inventories remain a source of strength for continued home price increases but we are concerned about the role of investors in the recent recovery. Cash transactions represent a high percentage of total sales. Furthermore, as “shadow inventory” is drawn into the market, further price gains won’t come easy. The data also does not reflect the impact of a recent spike in mortgage rates. The National Association of Realtors, in a downbeat outlook, sees slower sales ahead along with tight inventory and higher prices. However, the Fed’s last minute decision to continue QE3 might improve the negative outlook as rates have eased since late September.For the time being, home prices are not acting as a drag on the economy or consumer sentiment. Apparently, the Fed’s strategy to boost asset prices (including home prices) appears to be working through lower mortgage rates. We view this as confirmation of a still weak economy.
Many investors rely on the “wall of worry” theory but markets eventually get winded from such a climb. Keeping that hackneyed saying alive, pundits and Wall Street brokers keep pointing to a positive long-term outlook, pushing stock prices ever higher. But keep in mind, earnings have been contracting for several months and that makes corporate growth easier said than done. Even so, analysts are already postulating a 10% gain for the S&P 500 in 2013 even though earnings are forecasted to be less than half that number. Further complicating the ongoing conundrum, global growth forecasts are being trimmed, again. Rates are lower in the U.S., Japan and Italy, among others and unemployment continues its rise in Brazil and the Eurozone. Even so, the overall global forecast for 2013 calls for growth: the International Monetary Fund is estimating 3.6% growth in 2013, versus 3.3% in 2012. We break down global growth trends into three classifications. High-growth regions are led by China and India, forecast to grow 8% and 6%, respectively, next year. The middle tier includes countries such as the United States, Japan and Great Britain, in the 1%-2.5% range. The bottom-tier includes Eurozone countries such as Spain and Greece, which are in recession and are likely to contract again in 2013. Italy remains a wild-card; if its can recover without a major bailout, the Eurozone recession will not be as deep or as prolonged as forecast. Elections next spring will likely be crucial in setting the direction for the country: will voters agree to maintain austerity set in place by PM Mario Monti? If confidence in Italy falters, the IMF may once again cut its outlook for growth next year. If grwoth remains sluggish, how can we expect stock prices to move higher? Continue reading